28.1 What is an investment schedule and how does it differ from an investment demand curve?
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28.2 Why does equilibrium real GDP occur where C + Ig = GDP in a private closed economy? What happens to real GDP when C =Ig exceeds GDP? When C = Ig is less than GDP? What two expenditure components of real GDP are purposely excluded in a private closed economy?
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28.3 Why is saving called a leakage? Why is planned investment called an injection?
Why must saving equal planned investment at equilibrium GDP in the
private closed economy? Are unplanned changes in inventories rising,
falling, or constant at equilibrium GDP? Explain.
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28.4
Other
things equal, what effect will each of the following changes
independently have on the equilibrium level of real GDP in the private
closed economy?a. A decline in the real interest rate.b. An
overall decrease in the expected rate of return on investment.c. A
sizable, sustained increase in stock prices.
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28.5 Depict
graphically the aggregate expenditures model for a private closed
economy. Now show a decrease in the aggregate expenditures schedule and
explain why the decline in real GDP in your diagram is greater than the
decline in the aggregate expenditures schedule. What is the term used
for the ratio of a decline in real GDP to the initial drop in aggregate
expenditures?
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28.6 Assuming
the economy is operating below its potential output, what is the impact
of an increase in net exports on real GDP? Why is it difficult, if not
impossible, for a country to boost its net exports by increasing its
tariffs during a global recession?
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28.7 Explain
graphically the determination of equilibrium GDP for a private economy
through the aggregate expenditures model. Now add government purchases
(any amount you choose) to your graph, showing its impact on equilibrium
GDP. Finally, add taxation (any amount of lump-sum tax that you choose)
to your graph and show its effect on equilibrium GDP. Looking at your
graph, determine whether equilibrium GDP has increased, decreased, or
stayed the same given the sizes of the government purchases and taxes
that you selected.
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28.8 What
is a recessionary expenditure gap? An inflationary expenditure gap?
Which is associated with a positive GDP gap? A negative GDP gap?
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28.9 LAST WORD
What is Say’s law? How does it relate to the view held by classical
economists that the economy generally will operate at a position on its
production possibilities curve (Chapter 1)? Use production
possibilities analysis to demonstrate Keynes's view on this matter.
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